Say it louder: the EU is still a transfer union

Is the EU still about the distribution of wealth?

European Voice

10/5/11, 9:59 PM CET

Updated 1/22/16, 12:41 PM CET

Who still believes that the European Union is a transfer union, in which wealth is redistributed from richer countries and regions to poorer countries and regions, and from the well-off parts of society to the less well-off?

The question is worth asking just before the European Commission unveils its proposals for reforming Cohesion Policy and the Common Agricultural Policy (CAP). These are the big-spending, big-ticket items through which the EU has traditionally redistributed money. Underlying them was an assumption that the EU operated as a transfer union.

In the case of Cohesion Policy, the avowed aim was and is to reduce economic and social disparities.

The case of the CAP is more complicated. There were other objectives: guaranteeing the supply of food, maintaining a rural way of life, balancing support for German industry with support for French agriculture etc, etc. Nevertheless, the CAP has involved a transfer of wealth (even if its critics complain that it has made wealthy farmers wealthier).

There is good reason to think, however, that faith in a transfer union has been shaken. The eurozone debt crisis has seen senior German politicians question the value of sending money taken from German taxpayers to support idle Greeks. Slovakia refused to participate in the first eurozone bail-out of Greece. Finland demanded extra collateral as a condition of participating in the second. Transfers have now to be made in a disguised form, away from the public gaze – for instance, by lowering the rate of interest that will be levied on any loan made from the bail-out fund.

The EU has done itself no favours. Across a wide range of the EU’s activities, faith in wealth transfer has been steadily undermined by gesture politics. Member states have, for instance, asserted that investment in major research projects such as Galileo must be made conditional on the work being done in the country making the investment. The member states have resisted successive attempts to reform Cohesion Policy that would have concentrated more aid in those regions and sectors of society most in need of assistance. In debates over the EU’s budget, the countries that are net contributors (ie, put more into the EU’s coffers than they receive back) have sought to limit total spending, expending vast amounts of political energy on sums of money that are tiny compared with their own national budgets.

Another round of such squabbling is on its way – over spending in 2014-20. The fight that is to come over the size of the budget will be bitter and bloody – and will probably do further damage to the notion of a transfer union.

In one respect at least, the widespread reluctance of politicians publicly to back the EU as a transfer union is wholly understandable: there are few votes in it. National politicians do not win national elections by transferring money outside their country. The recipients may be grateful, but they cannot and will not express that gratitude in votes to the benefit of the donor.

However, the truth is that wealth transfer is desirable and can benefit both donors and recipients. The wealthier countries will benefit if the poorer countries of the EU become richer. Just as it was right for Germany to spend billions on raising living conditions in eastern Germany, so Germany stands to benefit from improving living conditions in central and eastern Europe. Germany’s exporters need markets abroad; they are already reaping the benefits of earlier EU Cohesion Policy.

The critics are right that the EU needs to use its regional aid money more wisely. Fraud and mismanagement have to be reduced, because they too have played their part in undermining public faith in a transfer union. Nor should governments and public bodies have a monopoly of such wealth transfer. Individuals and the private sector can play their part.

Nevertheless, the case for a transfer union deserves to be argued more eloquently and forcefully: it will be for the long-term benefit of all.